Vivendi to Trim Stake in French Water Utility

Seeking to ease investor fears over its soaring debt, Vivendi Universal’s board of directors agreed Monday to scale back its investment in a 149-year-old water utility that was once its core business.

Under the plan, media giant Vivendi Universal will reduce its ownership in Vivendi Environnement from 63% to slightly more than 40%, partly by selling $1.8 billion worth of its shares to a group of French investors as soon as market conditions are “appropriate.” Vivendi Environnement, which is separately traded and operates the world’s largest water services company, also will sell $1.3 billion worth of shares.

Vivendi Universal said it will use proceeds from the utility sale to lower its debt. In addition, by reducing its stake below 50%, under U.S. accounting rules Vivendi no longer will have to include the $13 billion in debt from the utility on its balance sheet.

The strategy represents a change for Vivendi Universal Chief Executive Jean-Marie Messier, who told shareholders at the company’s annual meeting in April that such plans were “not on the agenda.”

But Messier has since come under pressure from board members and investors to lower the company’s debt, which ballooned to $30 billion over the last three years as he transformed a sleepy French water utility into the world’s second-largest media company through several major acquisitions, including Universal Studios.

As part of Messier’s plan to slash its debt, Vivendi agreed Friday to sell half of a Norwegian pay-TV unit for $274 million. Vivendi also has announced plans to sell an Italian pay-TV firm to News Corp. and is reportedly close to selling its Canal Plus Technologies unit.

Analysts and investors, who have been confused about Messier’s plans for the water business, welcomed the board’s decision Monday. Vivendi’s American depositary receipts rose $1.86 to $28.51 on the New York Stock Exchange.

“This paves the way for the company to reduce its crushing debt load and lessen its focus on the utility business,” said George Nichols, a media analyst with MorningStar Inc. in Chicago. “[Vivendi] has been trying to position itself as a media and communications company, but investors don’t see the company in the same way because half of its revenue comes from the water business.”